Electrical Stocks Approach 52-Week Highs; Earnings Reports Spoil Some of the Fun

March 12, 2010
Wall Street has been holding an anniversary bash of sorts this week it's one year since the stock market bottomed out in March 2009. Some popular stocks

Wall Street has been holding an anniversary bash of sorts this week — it's one year since the stock market bottomed out in March 2009. Some popular stocks are celebrating in high style, like Apple is setting new records and on March 10 topped $220 per share for the first time ever. Surprisingly, many publicly held stocks with interests in the electrical market (see chart on page 2 for full list) are joining in the fun, too. Littelfuse Inc., Des Plaines, Ill., and W.W. Grainger Inc., Lake Forest, Ill., recently set new 52-week highs and quite a few companies are within one dollar a share of their 52-week highs. It does make you wonder where prices for electrical stocks will go when the economy really picks up.

Electrical Marketing doesn't want to be the one to shut off the music when stocks are having such a grand time, but it's earnings report season and as you can see below from the some of the numbers and comments from senior executives in the industry, 2009 was an ugly year.

W.W. Grainger, Lake Forest, Ill

The company's stock has been over $100-per-share since mid-January, has been hitting new 52-week — and company — highs for the past week; and is up more than $46 per share since the market bottomed in March 2009. Its 2009 financials were better than other distributors', too, as its 2009 net sales of $6.22 billion were down 9.2 percent from 2008. The company said sales were negatively affected by a decline in volume of approximately 14 percentage points, partially offset by price increases of approximately 5 percentage points. In addition, sales were negatively affected by 1 percentage point due to foreign exchange, while sales from acquisitions contributed approximately 1 percentage point.

Grainger's 2009 gross profit of approximately $2.6 billion was off 7.5 percent, but the company's gross profit margin for 2009 increased 0.8 percentage point to 41.8 percent from 41 percent in 2008. The improvement in the gross profit margin was primarily driven by price increases exceeding product cost increases, partially offset by an increase in the mix of sales to large customers, which are generally at lower margins.

According to Grainger's 10-K report filed on Feb. 25, the company sees some “initial signs of improvement” in early 2010 but expects job growth to lag the economic recovery. “Grainger expects positive sales growth in 2010 of 6 percent to 10 percent, which will be realized through the impact of acquisitions made in 2009, favorable foreign exchange rates and organic growth,” the reports said. “Beginning in 2006, Grainger has added approximately 234,000 new products as part of its multi-year product line expansion program in the United States, of which 70,000 were added to the 2010 catalog issued in February. Products were added to supplement the plumbing, fastener, material handling and security product lines. The product line expansion program has been a positive contributor to sales since being launched, and is expected to continue to be a driver of growth in 2010 and beyond. Grainger plans to continue to invest in the business and may choose to fund some additional sales and marketing programs to increase market share if sales trends accelerate in 2010.”

Littelfuse Inc., Des Plaines, Ill. While the stock of this fuse manufacturer is also hitting new 52-week highs this week, topping $39 per share, like many other manufacturers it suffered through 2009 sales declines approaching 20 percent. According to its 10-K annual report released on Feb. 26, its 2009 net sales of $430.1 million were down approximately 19 percent from its 2009 net sales of $530.9 million. Its Electrical segment had a 12 percent 2009 sales increase ($7.1 million) to $68.6 million because it included a full year of sales ($23.7 million) in 2009 from the acquisition of Startco Engineering Ltd., which it acquired in the fourth quarter of 2008.

Graybar Electric Co., St. Louis, The company's net sales were $4.38 billion in 2009, a decrease of 18.9 percent compared to 2008. The company also posted net income of $37.4 million, down 57.3 percent from the previous year. “While conditions were some of the most difficult in business history, our performance in 2009 resulted from hard work, a disciplined approach to managing our business and a consistent focus on our long-term strategy,” said Robert Reynolds, Jr., chairman, president and CEO. “We achieved profitability and finished the year with low debt levels and a strong cash position. This prepares us for growth as the economy recovers.”

WESCO Distribution Inc., Pittsburgh. The company said its 2009 financial results reflect weak conditions in markets served, lower commodity prices and unfavorable foreign currency exchange rates. The company's sales in 2009 decreased 24.3 percent to approximately $4.6 billion, and its operating income decreased 47.9 percent to $180 million due to the decrease in sales resulting from the decline in end market activity. The combination of these factors led to net income of $105.1 million, a decrease of 48.5 percent from the prior year.

In its 2009 10-K the company said, “We believe improvements in operations and capital structure and actions taken in 2008 and 2009 have positioned us to operate effectively in the lower level of activity being experienced in our end markets. We expect that the economic recovery will be slow and that market trends in 2010 will point towards continued contraction in the non-residential construction and utility markets and gradual recovery in the industrial, international and government markets. In total, we anticipate that the demand in our markets served will drop approximately three percent to five percent from 2009 levels and that our growth initiatives will somewhat offset the decrease. Despite competitive pressures, we expect moderate improvements in gross margins due to reduced inventory charges and supplier volume rebate rates recovering to historical norms.”

Rexel SA, Paris. The company's sales in North America, which account for 29 percent of its global sales, were down 26.2 percent in the fourth quarter. This is actually a slight improvement on its previous quarters' sales in 2009, which were each down more than 30 percent. Rexel's U.S. sales for the fourth quarter were down 30.1 percent, an improvement from the previous quarter's 35 percent sales decline. In the fourth quarter, U.S. sales were down 26.2 percent, slightly improving on Q2 and Q3. U.S. sales were affected by the low level of residential construction while several industrial sectors (steel, oil and gas and paper mills) and commercial end-markets weakened during the year. Branch closures accounted for a 4.3 percentage-point drop in sales over the year. Rexel's sales in Canada were down 11.3 percent for the year and down 14.6 percent for the fourth quarter. Rexel said its Canadian sales were impacted by lower industrial activity in Ontario and by the slowdown of oil-sands and related projects in Alberta.

According to a press statement accompanying the company's 2009 fourth-quarter and full-year financial results, “In 2009, Rexel delivered on its priorities, increasing the resilience of its business model through strict cost control and measures to protect margins, as well as deleveraging the group and strengthening its financial structure. In 2010, in an environment that will remain challenging, Rexel expects full year 2010 to post low single-digit drop in sales (after the 17.2% decline recorded in 2009), on a constant and same-day basis; improvement in full-year adjusted EBITA margin over the 4.0% recorded in 2009; and free cash flow before interest and tax of approximately $545.73 million (€400 million).”

Coleman Cable Co., Waukegan, Ill. For the fourth quarter of 2009, Coleman Cable generated a net loss of $3.3 million, as compared to a net loss of $34.1 million for the same period of 2008. “The improvement in our 2009 fourth quarter results as compared to the fourth quarter of 2008 primarily reflects the positive effect of recent cost reductions and capacity adjustments, as well as the positive impact of customer rationalization within our OEM segment,” said Gary Yetman, president and CEO. “Despite stable volume levels, our outlook remains fairly cautious as we believe economic conditions will remain challenging in the near term, with continued pricing pressures resulting from excess industry capacity and weak overall demand. Additionally, our visibility of when we may experience a sustained period of volume growth remains limited. Factoring in a continuation of the demand trends seen thus far in 2010, stability in copper prices, higher revenue from our recently introduced industrial cable products, and the fact that the first quarter of 2010, as in prior years, will likely reflect a degree of seasonal softness as compared to the back half of the year, we expect first-quarter 2010 net sales to be between $140 million and $150 million.”

Riding the Wave: Electrical Stocks Sitting Pretty

Publicly held companies with electrical interests near or within $1 per share of their 52-week highName Symbol Price on March 10 52-week Range MANUFACTURERS Acuity Brands Inc. AYI 41.57 20.41 - 41.63 Baldor Electric Co. BEZ 34.23 10.45 - 34.64 Cooper Industries CBE 47.68 18.99 - 47.87 Coleman Cable, Inc. CCIX 4.60 1.56 - 4.94 Cree, Inc. CREE 69.25 18.29 - 70.57 Emerson Electric Co. EMR 47.99 25.34 - 48.89 Eaton Corp. ETN 72.31 30.51 - 73.38 Federal Signal Corp. FSS 9.07 3.79 - 9.30 General Electric Co. GE 16.57 7.95 - 17.52 Hubbell Inc. HUB-B 49.15 22.42 - 49.61 Littelfuse Inc. LFUS 39.21 9.01 - 38.93 Magnetek Inc. MAG 1.48 1.20 - 2.30 Pentair Inc. PNR 34.21 17.70 - 34.88 Rockwell Automation Inc. ROK 56.2 18.65 - 56.88 Tyco International Ltd. TYC 37.72 17.52 - 38.88 DISTRIBUTORS W.W. Grainger Inc. GWW 108.08 61.93 - 107.73 WESCO International Inc. WCC 32.64 13.41 - 33.99 Interline Brands Inc. IBI 18.99 6.34 - 19.21